Postwar German democracy has been a success story. But the election victory of Donald Trump in the US has also highlighted growing fractures between voters and political leaders in the country. Many fear that democracy is eroding. By SPIEGEL Staff

In recent weeks, the sense of concern in the Chancellery had become increasingly palpable. With just a year to go until the next parliamentary elections in Germany, Chancellor Angela Merkel had still not announced whether she would run for a fourth term or not -- and her silence was not seen as a positive omen.Last week, though, the mood among the chancellor's staff in Berlin began to brighten. Donald Trump's election in the United States, many of her aides felt, made it more likely that Merkel would campaign for re-election. And on Sunday, she finally put an end to the speculation and announced her candidacy. In the press conference following her announcement, Merkel made certain to deny media pronouncements -- made by, among others, the New York Times -- that the German chancellor was now the de-facto ruler of the free world. Such a notion was "grotesque" and "absurd," she said.But is it? Trump's victory, after all, has changed the world. Up until Nov. 8, it seemed unimaginable that the West could in fact be in danger of destroying itself; that the very citizens who enjoy the freedoms guaranteed by Western liberalism could endanger the West by their own loss of faith in democracy. It proves that philosopher Jürgen Habermas was right to speak of "the shattering of political stability in our Western countries as a whole." The fundamental values of democracy -- enlightenment, the rule of law, respect and decency -- are no longer self-evident. And that holds true in Germany as well.Trump's election victory has now presented Germans with the question: How well does our own democracy work? Could someone like Trump be possible here too?Germany, of course, isn't America. So far, the country's historical sense of guilt for the horrors of World War II has inured the republic to right-wing siren songs. Furthermore, German politics is less polarized, less oligarchic and less corrupt. In Germany, you don't have to be a multi-millionaire to become chancellor, the social safety net is stronger and the cracks in society aren't as deep.Nevertheless, Germany has become all-too-familiar with the symptoms: hatred of the elite; disgust with politicians who have allegedly plundered the state; and contempt for business leaders and journalists. In Germany too, alienation is felt by many and public dialogue has become less restrained and more aggressive, particularly in social media channels such as Facebook and Twitter.Such developments notwithstanding, German postwar democracy has been an enormous success. For decades, strong center-right and center-left parties (the Christian Democratic Union (CDU) and the Social Democratic Party (SPD) respectively) managed to anchor even fringe right- and left-wing voters in the political process. Furthermore, politics developed in parallel with German society, resulting in the emergence of parties like the Greens, the Left Party and the Pirate Party. Today, though, that system is eroding. The political front lines are no longer between the left and right, but between the center and the fringes, between the democrats and the populists, between the defenders of fundamental values and those who call them into question. Following March elections in the eastern German state of Saxony-Anhalt, the CDU and SPD didn't even get enough votes between them to form a governing coalition and had to invite the Greens to join them. The causes for this shift are many. A significant number of voters feel that their concerns and fears are no longer being represented and that politicians are no longer listening. They feel that the political system isn't meeting their needs for social stability and state control, for home and identity. And they feel they are no longer welcome to say what they feel because opinions are instantly labelled as unacceptable. Yet far from healing the political rifts, repudiation and ostracism have merely made the problem worse. We have now arrived at a situation where the favorite political palliative -- "we have to take voters' concerns seriously" -- no longer has an effect. And nobody knows what to do.Populists have jumped into the gap. They claim to represent the true will of the people and reject both political correctness and the notion that politics is a debate-driven search for balance between competing convictions and interests.One can, of course, see the rise of the populists as a sign of democracy's strength. After all, they are providing a voice to those who hadn't thus far felt represented in the political spectrum. But it is also a danger. It gives power to a movement that does not share the values of freedom, equality and human dignity for all, preferring instead to destroy the foundations of political debate with lies and hate speech. When, though, does such a movement begin to represent a threat? When the populists reach 20 percent support? Or 30 percent? Or 50 percent?The erosion of political discourse is something that politicians in Berlin have been noticing for some time and parties have been searching for ways to stop the loss of members and the loss of faith in politics. They have carried out membership surveys and held referendums. The Chancellery spent millions on a project aimed at finding out what Germans are really concerned about and how they want to live.But such steps have done little to repair the defects in the country's system of democracy. Mayors and city council members complain that angry voters are now blocking almost every communal project; the state has withdrawn from many rural areas entirely; and everywhere, lobbyists from companies and associations are gaining influence. Even recent attempts to reinvigorate democracy by way of an increased number of referendums is threatening to fall victim to the populists.

THE FRUSTRATED

It is Tuesday evening, one week after Trump's election, and Matthias Bartke is standing in the civic center of Rissen, a neighborhood of Hamburg, talking about Donald Trump and the German right-wing populist party Alternative for Germany (AfD). In front of him are 15 people, almost all of them over the age of 60.Bartke, a member of the SPD, calls such events "District Debates," and Rissen, located just behind the upscale Hamburg neighborhood of Blankenese, is Bartke's electoral district. The walls of the civic center are decorated with pictures of old, thatched-roof houses. "Farage, Wilders, Le Pen, AfD -- and now Trump! We are living in the era of the right-wing populists," Bartke says to his audience. He's wearing a simple black suit with no tie."The populists have no substantial policies to offer," he says. A woman in a red scarf shakes her head vigorously. "No, no. It's not just that," she says. Later, she will ask him why Germany doesn't just send Syrian men back to the war. "They are in good shape; they should fight for their country." Bartke's first response is to laugh. He could answer that it would be inhuman to send refugees back to the war to die. Instead, he says: "That's not something that our country does." The woman doesn't seem convinced.A few hundred meters away, Benjamin Wilke is leaning against a newsstand at the entrance to a suburban train station smoking a cigarette. Wilke, 29, is wearing neon-blue sneakers along with neon-red rave pants. He doesn't know who his political representative is and he is uninterested in taking part in any district debates. "The politicians are all lying to us anyway," he says, exhaling a cloud of smoke. "They should focus on their own people and not on random refugees." Wilke is a handyman, but currently has a job as a sales clerk. He says he doesn't know what party he will vote for in next year's parliamentary elections, but he thinks it audacious of Merkel to run again: "after the whole refugee stunt that she pulled."Such dissatisfaction is apparent among all age groups, education levels and social classes. Politicians from every established party have encountered the phenomenon and are often frustrated that even their core voters are pulling away.In early November, several hundred municipal and regional politicians from across Germany gathered in Berlin for an SPD party convention. Initially, everything seemed normal, as though nothing had changed in the world. The event program called for two days of discussion on "future spaces" and "modern administration." But the convention quickly veered off-topic, with mayors, district administrators and town council members venting their frustration in an unending litany. Taken together, the message was clear: The relationship between politicians and voters, they said, is deeply troubled -- even among the grassroots where the bonds have traditionally been stronger."We have become the whipping boys," said one Social Democrat from Freiburg during a workshop called "Growing Cities." It hardly matters what the project is or how early one seeks input from locals, he said: "They are always opposed." Often they reject ideas on principal, he said, simply because the proposal comes from the city administration or from political leaders. "We are universally suspected of playing favorites or being corrupt."PART II: Germany's Deserted RegionsA municipal representative from a rural area in the state of North-Rhine Westphalia said that standard political jargon, such as "education drive" and "investment lag," no longer gets you anywhere. "And how should it when mildew is spreading in local schools?" That, she said, is what people talk about over dinner "and not whether education should be controlled by the states or by the federal government."Local politicians feel trapped, with targets set by the federal government in Berlin on one hand and the protests of the frustrated electorate on the other. In many places, angry voters take advantage of direct democracy to cancel out decisions made by elected representatives. It often works like this: Municipal representatives spend years developing a project with city administrators only to have furious citizens collect signatures and put a stop to the project by way of a referendum. The result is that the two sides are in competition as to who better represents the will of the people.

ALIENATION

One reason Katarina Barley was able to become general secretary of the national body of the SPD is that she hasn't been a politician her entire life. A former judge, she was first elected to the Bundestag, Germany's federal parliament, in 2013.Barley has not yet become jaded by politics and can still view things from the outside. That helps her understand why many Germans have turned their backs on politics. "Political decisions frequently seem tedious and are often difficult to understand," she says. Thus far, her SPD party has been unable to find a solution for its increasing inability to reach voters. The party has implemented video chats, allowing members to pose questions directly to senior party members. It holds Facebook discussions between voters and representatives. SPD office holders make door-to-door visits. And recently, the SPD opened up its Berlin party headquarters, allowing non-members to submit their ideas for inclusion in the party's platform.They are all well-meaning steps, but no more than that. They help the party communicate with people who are positively disposed to it already -- but the party remains unable to reach the others. Indeed, the bases of all established parties have been shrinking for decades. Since 1990, their membership rolls have halved. Only the Green Party has gained members since 1990, but it too has seen the number of new members drop in the last two years.Interestingly, it looks as though Trump's election has put a stop to that trend, at least for now. Since his victory in the US, many more people have joined Germany's left-leaning parties than usual. Within just eight days, the SPD registered 700 new members on its website alone. The Green Party got 114 new members in a single day. The Left Party, meanwhile, welcomed 314 new members in the week following the election, more than four times more than during a normal week.Donald Trump's victory appears to have made clear to many the threat right-wing populism poses to democracy, says the SPD's Barley. "It was apparently a kind of wake-up call." But Oskar Niedermayer, a prominent political scientist at Berlin's Free University, is skeptical. He says he hasn't yet been able to identify a trend reversal.

THE FORGOTTEN

Four years ago, the Green Party made a big deal of opening up an office in the town of Anklam, located not far from the Baltic Sea coast. Even Claudia Roth, the party's co-chair at the time, traveled up from Berlin and formulated the vision of a "Democracy Mile" that was to be established in the structurally weak town in a region that had formerly been part of East Germany.Just a few weeks ago, however, the office was closed down. Ulrike Berger, the former head of the party's state chapter in Mecklenburg-Western Pomerania, where Anklam is located, scraped the sunflower stickers off the front window, packed some boxes into a car and took off. The Greens have given up on the city, as has the SPD.Support for the populists, by contrast, is on the rise: In state elections in September, the AfD won 26.2 percent of the vote in the city. The area surrounding Anklam is the epitome of a region that has been unable to keep up. Those who are able, move away, with only the poorly educated, the unemployed and the elderly remaining behind. The result is that schools are closing, government agencies are being consolidated and buses have become more infrequent. The entire area is becoming deserted. The feeling of having been forgotten by "the powers that be" has become widespread in the region and social researchers already wrote years ago that democracy in the region is merely "a facade without a cultural foundation." Wherever the state pulls back, anger and resentment grow to take its place.If the government doesn't finally do something for eastern Mecklenburg-Western Pomerania, says Helmut Klüter, a geography professor at the nearby University of Greifswald, one can assume that the AfD will clean up in the next municipal elections and take over the city halls of dozens of towns. "Then, the party of the frustrated will be in the majority here."Experts say that ongoing demographic shifts are endangering democracy. "It is increasingly dividing the country into zones of winners and losers," argues Reiner Klingholz, director of the Berlin-based Institute for Population and Development. And not just in the eastern part of the country. He says that the solution has to be that of granting municipalities more freedom to make their own decisions and loosening rigid guidelines. That, he says, is the only way of allowing locals to develop solutions of their own when it comes to keeping schools, stores and medical practices open in addition to keeping public transportation up and running. "A new foundation develops in places where people can organize themselves," Klingholz says.

THE BENEFICIARIES

The crisis of democracy is a boon for the AfD. No previous political movement has ever been able to profit as much from drawbacks to the parliamentarian system as the right-wing party. "Something is wrong with Western democracies," AfD deputy head Alexander Gauland said in response to Trump's election victory. "The elite are becoming alienated from the people" across the globe, he says.

AfD co-founder Konrad Adam likewise believes his party is engaged in a battle with the "political class." Adam allows that the people can't make do entirely without political representatives when it comes to governing. But politicians have become a hermetically sealed caste, he believes. "What do we need them for? Couldn't we get rid of them entirely?" he wonders. Adam views the appellation "populist" as an "accolade." It is hardly surprising, then, that in a survey conducted by the pollsters at Allensbach last May, fully 71 percent of AfD voters agreed with the statement: "Politicians are clueless. I could do better." Furthermore, the AfD rejects the legitimacy of all politicians who don't adhere to "the will of the people," as defined by the AfD. The Allensbach study shows that "only very few Germans have internalized the principle of representative democracy" -- the idea that important decisions are made by elected politicians who "when in doubt vote in accordance with their own consciences and not with a momentary interpretation of the will of the people."The AfD enflames voter hatred for politicians by referring to them as "traitors to the people" if they don't constantly heed this so-called "will of the people." Indeed, when Donald Trump began promising to lock up Hillary Clinton after the election, senior AfD member Björn Höcke demanded that Angela Merkel "be dragged out of the Chancellery in a straitjacket." Like Trump, the AfD relies on radical simplifications and provocations. "Pointed, even provocative claims" are essential to receive media attention, wrote party head Frauke Petry in an email to AfD members. Once the message has hit home, she wrote, it can still be "competently and elaborately" expounded upon. While the AfD does not yet hold any seats in Germany's federal parliament, the party does have representatives in 10 state legislatures, but many of them consider their parliamentary work to be secondary. Instead, the party focuses on its connections to its supporters. It wants to be a movement more than a political body. Höcke in particular is fond of telling his followers that the party must "remain fluid" and not "calcified" like the "established" parties.And the AfD has, in fact, been successful in mobilizing many people who had long since turned their backs on politics. Since the AfD began experiencing electoral success, turnout has increased. That sends a powerful message to mainstream parties -- but for democracy as such, it is a dubious achievement.

DETACHED

On a recent Tuesday evening, Jean-Claude Juncker devoted a good hour of his time to the people. The European Commission president attended a town meeting in St. Vith, a small city in the German-speaking part of eastern Belgium. Many of those who live in St. Vith work in Luxembourg and do their shopping in discount supermarkets in Germany.

The European Union has become a normal part of daily life on the Continent, but it isn't nearly as deeply rooted when it comes to politics, as a mini-survey carried out in the meeting hall prior to Juncker's appearance demonstrated. More than half of those present said that they don't feel adequately represented by the European Commission.Juncker made a valiant effort to convince his audience that he is not merely a well-paid bureaucrat who no longer knows what goes on in the normal lives of Europeans. "I don't just sit in the 13th floor like a demi-god," he said. "I know what's going on." When German Finance Minister Wolfgang Schäuble wanted to throw Greece out of the euro zone, Juncker said he called friends in Athens to ask them about the effects of European austerity policies in the country. "I know what it's like for people in Greece who don't even have enough money for a visit to the doctor."The EU would like to develop a greater closeness with the people of Europe, but that is easier said than done. The debate over the "democracy deficit" in Brussels is as old as the European Union itself. The problem is that many highly political decisions are still made by bureaucrats, while elected representatives, whether in European Parliament or in member-state parliaments, still have too little say. Following his election to Commission president in 2014, Juncker claimed that his would be a "political Commission" and would focus on important issues rather than such trifles as the shape of cucumbers or the energy efficiency of toasters. But he has found limited success.Attempts to increase the powers of European Parliament have likewise proven ineffective thus far. Since the signing of the Treaty of Lisbon, representatives have more power, but compared to members of parliament in Germany, for example, European parliamentarians have limited rights.The bond between the people of Europe and their representatives in Brussels is too weak, says former German high court justice Dieter Grimm. "The election of the European Parliament is not sufficient to establish more legitimacy for the EU." He says there is a lack of a "continuing process of European-wide consensus building." The consequence, Grimm continues, is that the Commission and the European Court of Justice are "largely disconnected from the democratic processes in the member states and in the EU itself."National parliaments, by contrast, are seen as being much more effective in representing the interests of citizens and of controlling the government. Angela Merkel, for example, must face parliamentary questioning, including about policies she pursues in Brussels.That, says Green Party sage Reinhard Bütikofer, is why the best way to strengthen democracy in Europe is to increase the influence of national parliaments. In imitation of the Bundestag, they should keep close tabs on what their heads of state and government agree to in Brussels. "The fight for European democracy must be won in the member states," Bütikofer says.THE UPRIGHT

In 2010, "alternativlos" was chosen as the "non-word" of the year in Germany. It means "without alternative" or "indispensable" and was used frequently by Angela Merkel during the financial crisis to describe her policies. It became emblematic of a political path that she preferred not to put up for debate.Those who refused to accept that a given decision was "alternativlos" were seen as outsiders. Like Wolfgang Bosbach, the CDU politician who was vehemently opposed to Merkel's course during the crisis in Greece. "We in Germany, of course, have a guaranteed right to freedom of expression," Bosbach says. "But watch out if you use it in a way that the political mainstream or the journalists don't approve of."Nothing enflamed the hatred of the elite as much as the alleged indispensability of the government's course of action and the moral arrogance of a public discussion which pronounced certain viewpoints as politically incorrect. According to the public opinion research institute Allensbach, many Germans believe that freedom of opinion has eroded significantly since 1990. A survey conducted by the institute shows that in 1990, 78 percent of those surveyed were of the opinion that it was possible to freely voice an opinion in Germany. Today, that number has plunged to 57 percent.The popularity of Heinz Buschkowsky, the SPD politician who, until recently, was the mayor of the Berlin quarter of Neukölln, is instructive. Buschkowsky gained acclaim -- and notoriety -- for his openness in speaking about the problems facing his district, which has a significant immigrant population. He was famous for his repeated insistence that "multiculturalism has failed," a statement that did little to endear him to his party. It did, however, endear him to many in Berlin who felt that politicians and the media were not talking enough about the problems created by migration and the difficulties of integration. Those who did, many felt, were quickly branded as racists.Volker Kauder, conservative floor leader in the German parliament, feels that exaggerated political correctness is one reason that voters are flocking to the populists. "Of course anti-Semitic and racist comments must be rebuked, he says. "But not everybody who is worried about Islamist terror is an Islamophobe." He says it is often the case at his public appearances that people only have the courage to speak openly once the press has left. "People must be allowed to ask questions without being seen as part of the right wing," says Kauder. "Otherwise, they will ask their questions elsewhere."

CRONYISM

There was a tumultuous scene two weeks ago in the state parliament of Baden-Württemberg involving the AfD. In a debate about first responders, AfD representative Claudia Martin accused the German Red Cross of "lobbyism" and "cronyism," a claim that provoked anger from politicians of other parties. Representatives from the CDU, SPD and Greens said her comments were "insulting" and a "flagrant disparagement." Parliament Vice President Wilfried Klenk of the CDU had trouble getting the debate back under control.In fact, though, malfeasance between the government and the Red Cross has long been an issue in the country. Under the cover of altruism, the Red Cross in Baden-Württemberg has become an ambulance corporation that dominates the first responder market without offering particularly reliable services. What it does have is good connections to politicians. Parliament Vice President Klenk himself worked as a Red Cross official until just over a year ago while the state's justice minister, Guido Wolf, likewise of the CDU, heads up the local Red Cross chapter in Tuttlingen.Not every side job held by a politician is proof of corruption and lobbyism. But the example from Baden-Württemberg shows that the lines of acceptability have shifted. There are now some 5,000 professional lobbyists working in the government quarter of Berlin, many more than used to be the case. Former Chancellor Gerhard Schröder himself became a lobbyist once he was voted out of the Chancellery.Recent headlines have served to show how difficult it is for some politicians to maintain the requisite distance. It was revealed last week, for example, that Germany's European commissioner, Günther Oettinger, traveled across Europe in a private plane belonging to a lobbyist. And it likewise came out that German Transport Minister Alexander Dobrindt sought to prevent a lawsuit filed by German consumer protection organizations against VW in the emissions scandal that has rocked the automaker. Saying that the country has been "bought and paid for," as some AfD politicians do, is clearly going too far. But to lessen suspicions of corruption, it would be helpful if governments and parliaments were to agree on stricter rules of transparency. A compulsory register of lobbyists would serve to show which lobbyists worked on behalf of which clients. Lawmakers should also be required to reveal all of their income from side-jobs. And new rules should be introduced for former cabinet members regulating how long they must wait before joining a lobby firm.

PARTICIPATION

Many parties believe that direct democracy represents a way to shrink the gap between society and its political leadership. Referendums, they believe, offer citizens a path to a more direct form of participation. The Christian Social Union, the Bavarian sister party to the CDU, recently included demands for national referendums, which are currently forbidden under German law, in its official party platform. The SPD, Greens and Left Party are also in favor."Fundamentally, we have to provide citizens a greater say on important questions," says SPD floor leader Thomas Oppermann. CSU head Horst Seehofer, meanwhile, is fond of pointing to a referendum on the smoking ban in Bavaria that brought to an end years of debate on the issue. The hope is that greater direct participation will diminish widespread disgust with politics and limit the success of populists. But the Brexit referendum in the UK raises doubts as to whether more direct democracy can be an effective tool against populism -- or whether it merely gives them a new tool of their own.In Switzerland, right-wing populists sought a referendum to approve the deportation of foreigners who break the law while in the Netherlands, Geert Wilders would like to hold a referendum on the country's EU membership. "Of course populists will try to take advantage of these possibilities," says Oppermann. "But that is an opportunity for politics and not a danger."One risk, though, remains: Referendums aren't always focused on issues relating to policy. Instead, they are often used as a weapon against the powers that be. "Citizen participation," writes sociologist Christine Schwarz, "can be effective when democracy is seen and practiced as a joint project for success."The question is whether that is the goal of the AfD.

THE SEARCH

How could Trump have been elected? The search for the roots of his success isn't just being undertaken in the United States. In Germany, too, the discussion over the AfD and its followers will change. If half the electorate throws their support behind the populists, merely ostracizing them is no longer helpful.If Germany would like to protect its democracy, politicians must find other paths. They must be more critical in their identification and analysis of problems. They must recognize that democracy isn't perfect. And they must be more courageous and creative in further developing democracy.Unfortunately, there is no canned solution for how to breathe new life into democracy. But there are approaches for how democracy can be augmented. The most radical of them is one proposed by Belgian historian David Van Reybrouck. He argues that representatives should be chosen at random and not through general elections. Those picked would then be tasked with working together to come up with proposals for the government. The advantage is that angry voters would no longer be able to let off steam anonymously in the voting booths -- by voting in favor of Brexit, for example. They would be forced to participate. Choosing representatives by chance, Van Reybrouck says, would create a new form of public beyond the mass media and social networks. French historian Pierre Rosanvallon, who has written several books about the crisis facing democracy, suggests a similar approach. He proposes complementing government and parliament with citizens' conferences that would correct and exert oversight over the politicians. Like Van Reybrouck, he is eager to find a forum to increase citizen involvement in politics, beyond just voting every few years and venting on Facebook. He also believes that elections are not enough to secure democracy.The thinking of German philosopher Jürgen Habermas, meanwhile, goes beyond the nation-state. With globalization having robbed national parliaments and governments of their power, it is time, he believes, for a democratically legitimate cooperation beyond nation-state borders. If capitalism cannot be controlled within the framework of a nation-state, he argues, it's time to develop global instruments. That, though, is likely a project for the longer term.

HONG KONG – It is difficult to know exactly what US President-elect Donald Trump will do when he takes office in January. But he is all but guaranteed to pursue tax cuts and increased infrastructure spending. As a result, financial markets are anticipating faster growth in the United States – a perception that is boosting the dollar’s exchange rate against most currencies, including the renminbi, and triggering capital flight from emerging economies.

Notwithstanding Trump’s vow to impose tariffs on China, a resurgent dollar will hurt America’s trade competitiveness. After all, according to the International Monetary Fund, the dollar was already about 10-20% overvalued in June.

But that is not all. While trade is supposed to be the primary driver of exchange rates, which should rise or fall to correct countries’ external imbalances, capital flows have grown to the point that their role in guiding exchange rates is now much larger. In this context, market optimism about US growth could lead to ever-larger imbalances and possibly disrupt the international monetary system.

In 2010, former Bank of England Governor Mervyn King famously used the game of Sudoku to depict global savings imbalances, highlighting that the numbers in the table cannot be chosen independently. If, for example, all countries want to achieve full employment, and high-saving countries target a trade surplus, the low-saving countries cannot target a lower trade deficit. So when former US Federal Reserve Chair Ben Bernanke blamed the loss of monetary control in the US on the “surplus saving” countries, he had a point – at least with regard to trade flows.

What is missing from this assessment are investment flows. In fact, we can also fill in a Sudoku table showing the stock of net foreign investment claims by non-reserve-currency countries on reserve-currency countries, mainly the US and the United Kingdom. Some of the relevant investment flows have been funded through surplus credit in international markets.

From 1997 to 2007, the US net investment deficit widened by only $0.3 trillion, while the net investment surpluses of China, Japan, and Germany rose by $1.2 trillion, $1.1 trillion, and $0.8 trillion, respectively. The major investment-deficit players were the eurozone minus Germany, with a deficit of $2.4 trillion during that decade, and the UK, with a deficit of $0.5 trillion.

Over the next seven years, until 2014, America’s net investment position deteriorated by $5.7 trillion, producing a liability of 40.2% of GDP. The net investment position of the eurozone minus Germany hardly changed during this period, due to fiscal retrenchment. Meanwhile, Germany’s net investment surplus increased by $0.8 trillion, Japan’s rose by $1.2 trillion, and China’s was up by $0.7 trillion.

The rest of the world’s net investment position strengthened by $3 trillion during this period, owing mainly to the commodity boom, which faded as China slowed.

The rapid growth in America’s gross liabilities to the rest of the world is apparent in US Treasury data on foreign holdings of US securities, which rose from $9.8 trillion in 2007 to $17.1 trillion by June 2015, of which $10.5 trillion was debt and $6.6 trillion equity. Foreign holdings of US securities were equivalent to 95% of US GDP in June 2015.

Against this background, policies that will strengthen the dollar considerably could prove highly problematic. While there are good arguments for higher investment in infrastructure – from employment creation to productivity gains – one cannot ignore the fact that it will likely attract more global savings, pushing the dollar even higher. The Fed’s projected interest-rate hikes to deal with coming inflation would exacerbate this trend.

As the dollar strengthens, the value of US holdings of foreign assets will decline in dollar terms, while the country’s liabilities will continue to grow, owing to sustained fiscal and current-account deficits (now running at around 3-4% of GDP annually). The result will be further deterioration of America’s net investment position, which the IMF has projected will reach -63% of GDP by 2021.

Recent experience suggests that countries with net investment liabilities totaling more than 50% of GDP are at high risk of some form of crisis. While this pattern may not necessarily hold in the country with the dominant global reserve currency, there is a very real risk of capital-flow reversal.

The truth is that it is unlikely that the dollar-induced imbalances will be sustainable. The other reserve-currency countries will probably continue to allow their currencies to depreciate, in order to reflate their economies, and emerging economies will probably continue to use exchange rates to cope with capital-flow volatility. If this continues, the strain on the international monetary system will only intensify.

There is something that can be done to ease the pressure. During the global economic crisis, the Fed eased global liquidity shocks by undertaking currency swaps with other major central banks. Today, it could undertake similar swaps, but with countries facing large capital outflows, thereby slowing the dollar’s appreciation. The question is whether the US under Trump would be willing to develop currency-swap arrangements and other coordination mechanisms for emerging economies such as Russia and China.

Another route Trump could take would be to use the IMF as a proxy instrument to enforce discipline on countries with undervalued exchange rates. He does, after all, seem to view international institutions as little more than mechanisms to extract trade and investment advantages for the US.

This approach could put both the dollar and global financial stability at risk.

At a time of far-reaching economic and geopolitical risks, investors view the US dollar as a safe haven. But, in time, they may find that a new Plaza Accord – the 1985 agreement to devalue the dollar and push the Japanese yen and the Deutsche Mark sharply upward – will become necessary.

Trump bought the Plaza Hotel three years later, but sold it in 1995. So, this time, it might be called the “Trump Tower Accord.”

In more ways than liberals care to admit, Trump’s foreign policy might look like Obama’s. That’s not a good thing.

By Max Boot

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It is hard to imagine two presidents more dissimilar than Barack Obama, the cerebral and elegant liberal law professor, and Donald Trump, the brash populist and reality TV star. But if Trump’s campaign pronouncements are anything to judge by, his foreign policy may be more in sync with President Obama’s than either man would care to admit. And not in a good way: Trump shares with Obama a desire to pull back from the world but lacks Obama’s calm, deliberative style and respect for international institutions. A Trump presidency is inherently unpredictable — no one knows how much of his overblown rhetoric to take seriously — but if he does even half the things he suggested on the campaign trail, the result could be the end of the post-1945 Pax Americana.One of Trump’s top priorities is to improve relations with Vladimir Putin. In a post-election phone call, Trump told the Russian dictator that “he is very much looking forward to having a strong and enduring relationship with Russia and the people of Russia.” Sound familiar? Obama spoke in virtually identical terms when he took office in 2009. Hence his failed “reset” of relations with Moscow.This was part of Obama’s larger rejection of what he saw as the moralizing, interventionist approach of the George W. Bush administration. (Obama also thought that Dmitry Medvedev, then Russia’s president, would be a more accommodating partner than Putin, who remained as prime minister.) During the 2008 campaign, Obama made a big point of saying that he would talk to any foreign leaders without any preconditions — a stance that his primary challenger, Hillary Clinton, criticized as naive. In office, Obama has re-established relations with the Castros in Cuba and Myanmar’s junta, reached a nuclear deal with Ayatollah Ali Khamenei’s Iran, and did little to back up his calls for Bashar al-Assad to leave office. Instead of enforcing his “red line” with Syria, Obama agreed to a Russian-orchestrated deal under which Assad was supposed to give up his chemical weapons (a pledge the Syrian despot has not fully carried out). Obama has also refused to take any military action to stop Assad’s assaults on civilians, notwithstanding his creation of an Atrocities Prevention Board.Obama has often expressed his admiration for George H.W. Bush, and he has largely governed as an amoral realpolitiker who has put American interests, as he defines them, above the promotion of American values. Far from proselytizing for freedom and democracy, Obama has given a series of speeches in venues including Cairo and the Laotian capital of Vientiane — speeches that, to critics, have sounded like apologies for past American misconduct. (Obama’s aides have claimed he was merely “reckoning with history.”) When Iranian protesters took to the streets in the 2009 Green Revolution, Obama did not express support because he feared that doing so would interfere with his attempts to engage with the Iranian regime.On only a few occasions has Obama allowed idealistic considerations to gain the upper hand in his cold-blooded foreign policy — and never for long. He did intervene in Libya to help topple Muammar al-Qaddafi — an intervention Trump supported at the time but now criticizes — but he did little to try to shape post-Qaddafi Libya and gives every indication of regretting his initial intervention. He also called for Hosni Mubarak to step down as Egypt’s ruler during the Arab Spring but did not oppose the subsequent military coup that ousted an elected Muslim Brotherhood government and installed the regime of Abdel Fattah al-Sisi. It is obvious that human rights promotion, while not dismissed entirely, has not been an animating principle of the president’s foreign policy.More broadly, Obama has given every indication that he does not see America as an exemplar but rather a deeply flawed nation whose forays abroad often have harmful consequences. In a 2009 press conference, Obama dismissed the idea that America is “uniquely qualified to lead the world,” saying, “I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.” That doesn’t mean that Obama hates America, as the cruder right-wing attacks have had it. In the very same press conference, he went on to say: “Now, the fact that I am very proud of my country and I think that we’ve got a whole lot to offer the world does not lessen my interest in recognizing the value and wonderful qualities of other countries, or recognizing that we’re not always going to be right, or that other people may have good ideas, or that in order for us to work collectively, all parties have to compromise and that includes us.” Thus Obama sees the United States as imperfect but virtuous as long as it acts in concert with others — something that it has not always done.Enter Donald Trump, who has a far more jaundiced view of America than Obama does. In a revealing July 20 interview with the New York Times, Trump dismissed concerns about the massive violations of civil liberties being committed by Recep Tayyip Erdogan’s regime in Turkey: “When the world looks at how bad the United States is, and then we go and talk about civil liberties, I don’t think we’re a very good messenger.” In a similar vein, Trump dismissed concerns that Putin kills journalists: “Well, I think that our country does plenty of killing, too.” This is the kind of moral relativism that Republicans once denounced but now accept from the president-elect.As with Obama, Trump’s refusal to see America as a country with a mission leads him to look askance upon interventions abroad. Like Obama, he eschews nation-building and expresses a preference to work with foreign rulers regardless of their lack of democratic legitimacy. Trump reiterated to the Wall Street Journal after his election that he plans to end support for Syrian rebels and align with Russia in Syria: “My attitude was you’re fighting Syria, Syria is fighting ISIS, and you have to get rid of ISIS.” And never mind that Iran, Russia, and Assad are all committing war crimes.Trump’s approach is quite different from what Clinton advocated during the campaign; she called for no-fly zones and safe zones. But it’s not so different from Obama’s current policy, which provides a modicum of aid to the Syrian rebels but tacitly concedes that Assad will stay in power and does little to oppose the Iranian-Russian offensive in support of the Syrian regime. Indeed, some Syrian rebels welcome Trump for at least being honest: “Today,” one rebel leader in Aleppo told the New York Times, “we know that [the Americans] are really and practically not backing us, whereas before, we considered them our friend while they were implementing our opponents’ agenda.”This is not to suggest that Trump’s worldview is identical to Obama’s. One of their big divisions is over international institutions. Obama negotiated an international accord to reduce the emissions of greenhouse gases; Trump has said global warming is a Chinese hoax and called for pulling out of the Paris agreement. Obama negotiated a nuclear accord with Iran; Trump promises to renegotiate it, calling it a “disgraceful deal” and an “embarrassment to our country.” Obama is a free-trader who negotiated the Trans-Pacific Partnership (TPP); Trump is a protectionist who vows to withdraw from the TPP, rip up NAFTA, and impose tariffs. Obama has been supportive of NATO, working to expand the forces that the alliance deploys in Eastern Europe and the Baltics to guard against Russian aggression; Trump has called NATO “obsolete” and questioned the need to station U.S. troops to defend countries that don’t pay enough for the privilege.In sum, Obama is a believer in international organizations and international law; Trump is not. It is hard to imagine Trump saying, as Obama did: “I believe in American exceptionalism with every fiber of my being. But what makes us exceptional is not our ability to flout international norms and the rule of law; it’s our willingness to affirm them through our actions.” In turn, it is hard to imagine Obama ever threatening to bomb the “shit” out of another country, to steal its oil, or to torture detainees — all of which would constitute war crimes.In the terms coined by Walter Russell Mead, Obama is a Jeffersonian, while Trump is a Jacksonian: The former believes that the United States should perfect its own democracy and go “not abroad in search of monsters to destroy,” whereas the latter believes that “the United States should not seek out foreign quarrels” but that it should clobber anyone who messes with it. What unites Jeffersonians and Jacksonians, in spite of their substantial differences, is that both support quasi-isolationism — or, if you prefer, noninterventionism — unless severely provoked.Obama has been intent on pulling the United States back from the Middle East. The result of his withdrawal of troops from Iraq and his failure to get more actively involved in ending the Syrian civil war has been to create a vacuum of power that has been filled by the likes of the Islamic State and Hezbollah. Undaunted, Trump has said he wants not only to continue the pullback from the Middle East (he wants to subcontract American policy in Syria to Putin) but also to retreat from Europe and East Asia. He has suggested that he may lift sanctions on Russia and pull U.S. troops out of countries (from Germany to Japan) if he feels they are not paying enough for American protection. It is quite possible, then, that Trump’s foreign policy would represent an intensification rather than a repudiation of Obama’s “lead from behind” approach.

American power survived eight years of an Obama presidency, albeit in diminished form. If the president-elect governs the way he campaigned (which, admittedly, is not necessarily a safe assumption), there is good cause to wonder whether U.S. ascendancy will survive four to eight years of Trumpism. The post-American age may be arriving sooner than imagined, ushered in by a president with an “America First” foreign policy.

Max Boot is the Jeane J. Kirkpatrick senior fellow for national security studies at the Council on Foreign Relations. His forthcoming book is “The Road Not Taken: Edward Lansdale and the American Experience in Vietnam.”

Summary

- Many analysts are comparing the election of Donald Trump with the election of Ronald Reagan and the fact that President-elect Trump is proposing economic policies not unlike those of Reagan.- There are major differences, however, as Reagan was elected while a recession was taking place and while inflation was getting so bad that Volcker and the Fed had to act.- Trump faces an economic recovery that is seven and one half years old, is the slowest on record, where inflation is little or no problema.

The picture since the election day when Donald Trump was elected as President of the United States: the stock market has soared to new historical highs, longer-term bond yields have risen dramatically, and the value of the US dollar has strengthened against most other currencies.

In other words, Donald Trump, president-elect, is going to come into Washington, D. C. and cut taxes all over the place and increase government spending, especially on infrastructure, and goose up economic growth and inflation in order to put disaffected Americans back to work and make them feel a part of the United States again.

If this is the case, and a President Trump actually gets his wish to reduce taxes and substantially increase government spending, we are going to be in a position to observe a vast macroeconomic experiment that will test the limits of our knowledge of how the economy actually works.

Some analysts are seeing Donald Trump as the new Ronald Reagan, who came into power in 1981 and lowered marginal tax rates substantially and increase government expenditures, especially spending on the military, and brought on a new age of economic prosperity.

The hopes for the Trump expansion have one major difference with the Reagan situation.

Reagan got elected toward the end of a recession, the recession going from January 1980 until it reached a trough in July 1980. Reagan, optimistically, saw a brighter future, one that included pulling out of the recession and moving into a period of sustained expansion.

The problem Reagan faced was that inflation was also taking off and Paul Volcker had been brought in as the Chairman of the Board of Governors of the Federal Reserve System toward the end of the Carter presidency in order to break the back of the inflation, which is what he did.

But, there was another recession in the first year of Reagan's tenure at U. S. President, the recession beginning in July 1981 and running until November 1982, a period of 16 months.

Then, however, the expansion took off and lasted for seven years and eight months before the next recession came along in July 1990. This is the third longest period of economic recovery since the Second World War.

Trump faces a wholly different situation.

Trump will come into office, if the expansion continues until then…and it will…with the current expansion extending seven years and six months.

And, Mr. Trump will not be facing raging inflation like the inflation taking place at the beginning of the 1980s.

But this situation, to me, sets the stage for the macroeconomic experiment.

Not only is the economic expansion going to be seven and one half years old, this expansion has been the weakest expansion on record.

Over these seven and one half years, the economy has only expanded at a 2.1 percent compound annual rate. And, the expansion has been accompanied by a declining rate of growth of labor productivity and a historically low level of capacity utilization in the industrial sector.

Furthermore, this expansion has taken place with high levels of federal budget deficits and, in terms of monetary policy, three rounds of quantitative easing that has taken the balance sheet of the Federal Reserve to such huge levels, unimaginable before the Great Recession occurred.

Given these expansionary policies, the question has been raised concerned the effectiveness of attempts to manage the economy by means of policies to stimulate aggregate demand.

It seems as the supply-side of the economy is dominating the expansion of the economy and that demand-side policies can do very little to change the trajectory of the economy.

If this is the case, then policies to stimulate the demand-side of the economy can do very little to boost economic growth. Tax cuts aimed at stimulating demand in the short-run and spending programs, like infrastructure renewal, can do very little if the supply-side of the economy is setting the pace.

But, the supply-siders will say that Mr. Trump's ideas provide incentives to stimulate the supply-side, boost labor productivity and capacity utilization. If this is true, then I am all in favor of them.

The problem is that these kinds of supply-side efforts take time to work themselves through the economy. Gaining more rapid growth in the short-run will not be achieved in this way.

Going further, there is the problem with the age of the current economic recovery.

The longest economic recovery since the end of the Second World War is ten years.

Recoveries get weary. Uncertainty starts to dominate the economy. And, problems grow up…both in the United States and the world…that have evolved within the recovery.

So, it seems to me that we are on the cusp of an interesting experiment having to do with our understanding of how the macro-economy works…whether or not it is predominantly driven by demand-side factors or by supply-side factors.

One thing is sure, however, the economic situation we face today is not that similar with the one faced by the incoming Reagan administration.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.